Although direct donations continue to be the most common way for Canadians to give to charities, high net-worth individuals are increasingly using alternative structures for making significant charitable gifts, according to experts in the sector.

In particular, the desire for choice and flexibility has led to a rise in the use of foundations, including donor-advised funds, as the preferred structures for wealthier individuals to become philanthropic.

“There are larger amounts being donated, there’s much greater complexity to charitable planning, and there’s a desire to be involved [in managing donations for maximum benefit],” says Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group in Toronto.

However, direct donations, whether in cash or kind, can be the ideal choice if a donor knows which charities he or she wants to support, and prefers the simplicity of direct giving.

“The majority of donations still go directly to charities,” Burrows says.

From a donation tax credit perspective, there is effectively no difference between direct giving and indirect giving through a foundation. The choice between the two depends on the needs of the donor.

Donor-advised funds and private foundations act as intermediate entities that allow individuals to make donations, manage and grow the funds within the charitable structure, and flow money out to charities of choice, either as a lump sum, or over time.

“You can separate the timing of the tax receipt and timing of the gift to the charity when you have a foundation in the middle,” Cestnick says. “You can do some research and decide which charities you really want to give to and then allocate dollars out to the charities later.”

The other key benefit of a foundation is that it allows the donor to establish a legacy.

“Creating a foundation with your name on it allows the foundation to give to charity after you’re gone,” Cestnick says. “Maybe it’s your children, or other family and friends who control the distribution from the foundation after you’re gone.”

Private foundations are largely geared to very wealthy individuals and families who want to manage a significant pool of charitable assets – typically in the millions of dollars – over a longer period of time. They are completely separate entities, are responsible for their own administration and annual tax filings, and give the donor complete control over every aspect of the entity.

One advantage of private foundations is that they allow for the passing on of a family’s wealth and values over multiple generations.

“By naming children to the board, you can educate them on things like good governance, investment strategy, and business principles,” Cestnick says. “The foundation becomes the training wheels for them.”

Donor-advised funds are charitable vehicles that are administered and managed either by a commercial firm, such as a bank or asset management firm, or a public charitable foundation. Donor-advised funds allow investors to, in effect, enjoy much of the benefits of a private foundation, but without the administrative, compliance, or cost burden of setting up their own separate private foundation.

Donor-advised funds also have the advantage of offering individuals privacy compared to private foundations. Foundations must make public filings, which include information such as names of family members and details about which charities receive money.

“With donor-advised funds, the only information that’s reported is the about the overall public foundation the donor-advised fund lives within,” Burrows says.

Of course, donor-advised funds through commercial providers allow advisors to earn fees from the management of a client’s assets, whereas if a client chooses direct charitable giving, assets will leave the client’s account immediately.

However, it’s important that advisors, as always, put their client’s interests first in terms of providing charitable giving advice as part of overall financial and estate planning, charitable experts say.

“It’s a belief that we will get and keep many more clients [in the long run] because we are serving client’s core needs,” Burrows says.

This is the third article in a three-part series on charitable giving.